1. 1 ARTICLE XX THAI CIGARETTES AND USA IMPORTED GASOLINE Andrea CintolesiEdoardo Ferrucci

2. 2 ARTICLE XX of GATT Subject to the requirement that such measures are not applied to […] constitute a means of arbitrary or unjustifiable discrimination […], nothing in this agreement shall be construed to prevent the adoption or enforcement by any contracting party of measures: a)Necessary to protect public morals b)Necessary to protect human, animal, or plant life or health c)Relating to import-export of gold and silver d)Necessary to secure compliance with laws or regulations which are not inconsistent with the previsions of this agreement […] e), f) […] g) Relating to the conservation of exahaustible natural resources h), i), j) […]

3. 3 Interpretation of Art. XX FROM www.wto.org 1.From Us-Gasoline case: It is of some importance that the Appellate Body point out what this does not mean. It does not mean, or imply, that the ability of any WTO Member to take measures to control air pollution or, more generally, to protect the environment, is at issue. That would be to ignore the fact that Art XX contains provisions designer to permit important state interests — including the protection of human health, as well as the conservation of exhaustible natural resources — to find expression

4. 4 Interpretation of Art. XX FROM www.wto.org 2.‘necessary’ — in paragraph a), b) and d); ‘essential’ — in paragraph j); ‘relating to’ — in paragraphs c), e) and g); ‘for the protection of’ — in paragraph f); ‘in pursuance of’ — in paragraph h); and ‘involving’ — in paragraph i). It does not seem reasonable to suppose that the WTO Members intended to require, in respect of each and every category, the same kind or degree of connection or relationship between the measure under appraisal and the state interest or policy sought to be promoted or realized.”

5. 5 Interpretation of Art. XX FROM www.wto.org 3.“In order for a measure to be applied in a manner which would constitute ‘arbitrary or unjustifiable discrimination between countries where the same conditions prevail’, three elements must exist. First, the application of the measure must result in discrimination. [..] Second, the discrimination must be arbitrary or unjustifiable in character.[..] Third, this discrimination must occur between countries where the same conditions prevail.

6. 6 THAI CIGARETTES (1990) Complainant: UNITED STATES Respondent: THAILAND Third parties: THE EUROPEAN COMMUNITIES INVOLVED PARTIES: This resport has been harshly criticized as “pro-trade” biased

7. 7 THAI CIGARETTES (1990) THAILAND PROHIBITED IMPORT OF CIGARETTES AUTHORIZED THE SALE OF DOMESTIC CIGARETTES : Tax on cigarettes: excise tax, municipal tax, business tax Discrimination justified by article XX (b) (to protect human health) Foreign cigarettes contain harmful additives Some measures could be effective if imports were prohibited

8. 8 THAI CIGARETTES (1990) UNITED STATES IMPORT RESTRICTIONS INCONSISTENT WITH ARTICLE XI:1 AND WERE NOT JUSTIFIED BY ARTICLE XX(b) INTERNAL TAXES INCONSISTENT WITH ARTICLE III:2

9. 9 THAI CIGARETTES (1990) THAILAND ASK THE PANEL TO CONSULT W.H.O. EXPERTS TO SHOW FOREIGN CIGARETTES BE MORE HARMFUL W.H.O. CONCLUSION SHARP DIFFERENCES BETWEEN TWO KINDS OF CIGARETTES LOCALLY GROWN TOBACCO LEAF WAS HARSER AND SMOKED WITH LESS FACILITY NOT PROVIDE SCIENTIFIC EVIDENCE THAT CIGARETTES WITH ADDITIVES WERE LESS OR MORE HARMFUL TO HEALT

10. 10 UNITED STATESRECENT PANEL: A party could not justify a measure by article XX if an alternative measure which is reasonably be expected to employ and which is not inconsistent with other GATT provisons is also avilable to it. If consistent measures aren’t avilable, the party is bound to use the measure which entails the least degree of inconsistency with other GATT provisions. UNITED STATES CONSIDER THAT THAILAND COULD PREVENT THE INCREASE IN THE NUMBER OF SMOKERS WITHOUT IMPOSING A BAN ON IMPORTS, AS OTHER COUNTRIES WERE SUCCESSFULLY DOING THAI CIGARETTES (1990)

11. 11 THAI CIGARETTES (1990) THAILAND RECENT MEASURES AS Reduction of production Reduction of area where tobacco is grown Informing public of danger Prohibiting smoking in public places Improving data collection Total ban on advertising about tobacco Statistics shown that smoking rate is declined over 10 years in per capita terms; THAILAND Competition imply wider avilability and reduction of prices, so an increase in consumption Some USA cigarettes are specifically target to to woman

12. 12 THAI CIGARETTES (1990) UNITED STATES THAILAND HAS: More than 15 tobacco brends that try to imitate USA brands A well established distribution system both at the wholesale and retail levels UNITED STATES As in other Asian markets happened, a liberalization and a change in Thai economical situation would lead to a shift in consumption, instead of an increase in consumpition USA cigarettes ingredients had been discolsed to Departement of Health and Human Services and they raised no issue, and none other countries had raised problem with ingredients in USA cigarettes, moreover Thailand had no regulation or restrictions about ingredients.

13. 13 THAI CIGARETTES (1990) W.H.O. CONCLUSIONS The rate of smokers in Thailand is decreasing due to the small but growing Thai tobacco control programme. If the multinational entered the market, the poorly-financed public health programmes would be unable to compete; as a result death and disease attributable to smoking would increase Is an enormous and expensive programme to analyse the single impact of an ingrediente. Actually there are not scientific evidence that one type of cigarettes is more harmful than another Higher price would results in a reduction in smokers, mainly among young people whose elasticity is greater than the dependent ones.

14. Tahiland policy was inconsistent with: Art. XI:1 “no restrictions or prohibitions…made effectively through… import licenses… shall be instituted or manteined by any contracting party on the importation of any product…” Panel want to analyse whether this measure was justified by Art. XX(b): “…nothing in this agreement shall be construed to prevent the adoption…of measures: b)Necessary to protect human… life or health” Panel accepted that measures to reduce the consumption of cigarettes fell within the Art.XX b). But that measure need to be “necessary”: in particular no other reasonable measures consistent or less inconsistent with GATT provisions should be avilable. As Usa claims, Panel analyse whether Thailand could pursues its objective under the provision of Art. III:4 [a party can] impose laws, regulations and requirements affecting internal sales, distributions, purchase, transportation or use of imported products provided that they do not thereby accord treatment to imported products less favourable then that accorded to “like” products of nation origines. 14 PANEL FINDINGS

15. 15 PANEL FINDINGS - The Panel analyse quality concerns: a regulation requiring a complete disclosure of ingredients, coupled with a ban on unhealthy substances, would be an alternative consistent with General Agreement. - the Panel analyse quantity concerns, in order to find a measure consistent or less inconsistent that the prohibition on imports: - WHO report showed that demand was influenced by advertisements especially concerning young people, so a ban on them could therefore curb such demand - Panel noted that such policy and liberalization of market could lead to unequal competitive opportunities, but it is considered “necessary” in the meaning of atcle XX b) beacuse additional advertising rights would results in an increase in consumption

16. 16 PANEL FINDINGS - the Panel analyse how Thailand could reduce supply of cigarettes in a manner consistent with General Agreement: Panel noted that Thailand could mantain his monopoly and control prices, quantity and avilability throught it, and this wouldn’t provided foreign cigarettes for a less favourable treatment than domestic cigarettes. For these reasons the Panel could not accept the argument of Thailand that competition between imported and domestic cigarettes would necessary lead to an increase in the total sales of cigarettes and that Thailan therefore had no option but t prohibit cigarettes imports.

17. UNITED STATES STANDARDS FOR REFORMULATED AND CONVENTIONAL GASOLINE PANEL REPORT: 29 JANUARY 1996 17

18. THE CLEAN AIR ACT (1963) 1990 AMENDMENT: NEW REGULATIONS ON THE COMPOSITION AND EMISSIONS EFFECTS OF GASOLINE IN ORDER TO IMPROVE AIR QUALITY 18 THE MARKET FOR SALE OF GASOLINE WAS DIVIDED INTO 2 PARTS: -NONATTAINMENT AREAS (REFORMULATED GASOLINE) -OTHER AREAS (CONVENTIONAL GASOLINE)

19. EPA’S GASOLINE RULE -DOMESTIC REFINERS (IN OPERATION FOR AT LEAST 6 MONTHS IN 1990): INDIVIDUAL REFINERY BASELINE -IMPORTERS, BLENDERS (UNLESS THEY CAN DETERMINE INDIVIDUAL BASELINES FOLLOWING METHOD 1) + REFINERS IN OPERATIONS FOR LESS THAN 6 MONTHS: STATUTORY BASELINE 19 MULTIPLE REQUIREMENTS FOR CONVENTIONAL AND REFORMULATED GASOLINE (FIXED + «NON-DEGRADATION») MAY 1994 PROPOSAL (REJECTED IN SEPTEMBER 1994)

20. VENEZUELA AND BRAZIL CLAIMED THAT THE GR VIOLATED: 20 -Art III:1,4 -Art I (MOST FAVOURED NATION PROVISION) -Art XXIII:1 (b) (Venezuela) -Art 2 of the TBT Agreement USA REJECTED THE CLAIMS: THE GASOLINE RULE CAN BE JUSTIFIED UNDER THE EXCEPTIONS OF Art XX par. (b) (d) AND (g) SUCH ARGUMENT WAS REJECTED BY BOTH VENEZUELA AND BRAZIL

21. PANEL FINDINGS The products of the territory of any contracting party imported into the territory of any other contracting party shall be accorded treatment no less favourable than that accorded to like products of national origin in respect of all laws, regulations and requirements affecting their internal sale, offering for sale, purchase, transportation, distribution or use. The provisions of this paragraph shall not prevent the application of differential internal transportation charges which are based exclusively on the economic operation of the means of transport and not on the nationality of the product. 21 ARTICLE III:4

22. -LIKE PRODUCTS: VARIOUS CRITERIA APPLIED BY PREVIOUS PANELS (SIMILAR PROPERTIES, END-USE, CLASSIFICATION IN TARIFF NOMENCLATURE) -IMPORTED AND DOMESTIC GASOLINE ARE LIKE PRODUCTS -LESS FAVOURABLE TREATMENT: INDIVIDUAL/STATUTORY BASELINE -IMPORTED GASOLINE WAS EFFECTIVELY PREVENTED FROM BENEFITTING FROM AS FAVOURABLE SALES CONDITIONS AS WAS DOMESTIC GASOLINE 22 ARTICLE III:4 PANEL FINDINGS

23. FURTHER USA EXCEPTIONS: -IMPORTED GASOLINE WAS TREATED SIMILARLY TO GASOLINE FROM SIMILARLY SITUATED DOMESTIC PARTIES -NO LESS FAVOURABLE TREATMENT ON THE WHOLE 23 PANEL FINDINGS ARTICLE III:4 BOTH REJECTED: IMPORTED GASOLINE WAS TREATED LESS FAVOURABLY THAN DOMESTIC GASOLINE

24. The contracting parties recognize that internal taxes and other internal charges, and laws, regulations and requirements … …should not be applied to imported or domestic products so as to afford protection to domestic production. 24 PANEL FINDINGS ARTICLE III:1 «SINCE Art III:1 IS A MORE GENERAL PROVISION THAN EITHER Art III:2 OR Art III:4, IT WOULD NOT BE APPROPRIATE TO CONSIDER IT» [MALT BEVERAGES PANEL]

25. THE PANEL’S TERMS OF REFERENCE WERE ESTABLISHED AFTER THAT THE «75% RULE» HAD CEASED TO HAVE ANY EFFECT. 25 PANEL FINDINGS ARTICLE I:1 THE PANEL DID NOT PROCEED TO EXAMINE THIS ARTICLE.

26. Subject to the requirement that such measures are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or a disguised restriction on international trade, nothing in this Agreement shall be construed to prevent the adoption or enforcement by any contracting party of measures: -… -(b)necessary to protect human, animal or plant life or health; -… 26 PANEL FINDINGS ARTICLE XX (b)

27. AS THE PARTY INVOKING AN EXCEPTION, USA WERE REQUIRED TO PROVE THE FOLLOWING: 1)THE POLICY FELT WITHIN THE RANGE OF POLICIES DESIGNED TO PROTECT HUMAN, ANIMAL OR PLANT LIFE OR HEALTH 2)THE MEASURE WAS NECESSARY TO FULFIL SUCH OBJECTIVE 3)THE MEASURE WAS APPLIED IN CONFORMITY WITH THE REQUIREMENTS OF THE INTRODUCTORY CLAUSE 27 PANEL FINDINGS ARTICLE XX (b)

28. USA STATEMENT OF POLICY GOAL: APPROXIMATELY ONE HALF OF GROUND-LEVEL OZONE AND TOXIC SUBSTANCES WAS CAUSED BY VEHICLE EMISSIONS, AND THE GASOLINE RULE AIMED TO REDUCED THESE. VENEZUELA AND BRAZIL DID NOT OBJECT, AND THE PANEL AGREED WITH THIS VIEW 28 PANEL FINDINGS ARTICLE XX (b)

29. NECESSITY OF THE INCONSISTENT MEASURE INTERPRETATION OF THE TERM NECESSARY: «..a contracting party cannot justify a measure inconsistent with another GATT provision as necessary in terms of Art XX(d) if an alternative measure measure wich it could reasonably be expected to employ and wich is not inconsistent with other GATT provisions is available to it. … » 29 PANEL FINDINGS ARTICLE XX (b) SAME INTERPRETATION ADOPTED BY THE 1990 THAI CIGARETTES PANEL

30. VENEZUELA AND BRAZIL: FOREIGN REFINERS SHOULD BE ACCORDED THEIR OWN INDIVIDUAL BASELINES USA REJECT THE PROPOSAL BECAUSE OF: -IMPOSSIBILITY OF DETERMINING THE REFINERY OF ORIGIN -INCENTIVE TO GAME THE SYSTEM - DIFFICULTIES TO EXERCISE AN ENFORCEMENT JURISDICTION 30 PANEL FINDINGS ARTICLE XX (b)

31. «…in cases where a measure consistent with other GATT provisions is not reasonably available, a contracting party is boundle to use that wich entails the least degree of inconsistency with other GATT provisions.» 31 PANEL FINDINGS ARTICLE XX (b) SECTION 337 CASE – PANEL REPORT: USA HAD NOT DEMONSTRATED THAT THERE WAS NO OTHER MEASURE CONSISTENT OR LESS INCONSISTENT WITH Art III:4

32. USA HAD NOT MET ITS BURDEN OF SHOWING THE PRESENCE OF AN ADEQUATE JUSTIFICATION IN ORDER TO MAINTAIN THE INCONSISTENCY WITH Art III:4 32 PANEL FINDINGS ARTICLE XX (b) SINCE THE BASELINES ESTABLISHMENT METHODS DID NOT RESULT NECESSARY, THE PANEL DIDN’T PROCEED TO EXAMINE THE CONDITIONS OF THE INTRODUCTIONARY CLAUSE

33. … -… -(d) necessary to secure compliance with laws or regulations which are not inconsistent with the provisions of this Agreement, including those relating to customs enforcement, the enforcement of monopolies operated under paragraph 4 of Article II and Article XVII, the protection of patents, trade marks and copyrights, and the prevention of deceptive practices; -… 33 PANEL FINDINGS ARTICLE XX (d)

34. USA THEREFORE HAD TO DEMONSTRATE: -THAT THE MEASURE INCONSISTENT WITH THE GENERAL AGREEMENT SECURED COMPLIANCE WITH LAWS OR REGULATIONS (THEMSELVES NOT INCONSISTENT) -THAT THE INCONSISTENT MEASURE WAS NECESSARY TO SECURE COMPLIANCE -THAT THE MEASURE WAS APPLIED IN CONFORMITY WITH THE INTRODUCTIONARY CLAUSE OF Art XX 34 PANEL FINDINGS ARTICLE XX (d)

35. THE PANEL FOUND THAT MAINTAINANCE OF DISCRIMINATION BETWEEN IMPORTED AND DOMESTIC GASOLINE CONTRARY TO Art III:4 UNDER THE BASELINE ESTABLISHMENT METHODS DID NOT SECURE COMPLIANCE WITH THE BASELINE SYSTEM 35 PANEL FINDINGS ARTICLE XX (d) SECURING COMPLIANCE WITH CONSISTENT LAWS OR REGULATION

36. NO NECESSITY TO VERIFY THE SATISFACTION OF REMAINING REQUIREMENTS 36 PANEL FINDINGS ARTICLE XX (d)

37. 37 PANEL FINDINGS ARTICLE XX (g) … -… -(g) relating to the conservation of exhaustible natural resources if such measures are made effective in conjunction with restrictions on domestic production or consumption; -…

38. POLICY GOAL OF CONSERVING AN EXHAUSTIBLE NATURAL RESOURCE ALTHOUGH VENEZUELA CLAIMED THAT CLEAN AIR COULD NOT BE CONSIDERED AS EXHAUSTIBLE, THE PANEL FOUND THAT A POLICY TO REDUCE THE DEPLETION OF CLEAN AIR FELL WITHIN THE MEANING OF Art XX (g) 38 PANEL FINDINGS ARTICLE XX (g)

39. MEASURES RELATED TO THE CONSERVATION OF AN EXHAUSTIBLE NATURAL RESOURCE… IN CONJUNCTION WITH RESTRICTIONS ON DOMESTIC PRODUCTION OR CONSUMPTION -RELATED TO [1987 HERRING AND SALOMON CASE] NO DIRECT CONNECTION BETWEEN THE LESS FAVOURABLE TREATMENT OF IMPORTED GASOLINE, AND THE US OBJECTIVE OF IMPROVING AIR QUALITY 39 PANEL FINDINGS ARTICLE XX (g)

40. THE BASELINE ESTABLISHMENT RESULTED TO BE NOT CONSISTENT WITH Art III:4, AND COULD NOT BE JUSTIFIED UNDER Art XX par. (b), (d) OR (g) 40 PANEL’S CONCLUSIONS

41. CLAIMS: -PANEL’S CONCLUSION REGARDING Art. XX (g) -INTERPRETATION OF Art. XX AS A WHOLE 41 USA NOTICE OF APPEAL 21 February 1996

42. THE BASELINE ESTABLISHMENT RULES DOES CONSTITUTE A MEASURE RELATING TO THE CONSERVATION OF CLEAN AIR WITHIN THE SCOPE OF Art. XX (g) 42 USA NOTICE OF APPEAL NEED TO EXAMINE THE OTHER REQUIREMENTS OF Art. XX (g) VENEZUELA AND BRAZIL SUPPORTED THE PANEL’S CONCLUSIONS

43. PANEL’S CONCLUSIONS: -NO DIRECT CONNECTION BETWEEN THE LESS FAVOURABLE TREATMENT AND THE US OBJECTIVE OF IMPROVING AIR QUALITY -SUCH DISCRIMINATING RULES WERE NOT NECESSARY FOR THE CONSERVATION OF AN EXHAUSTIBLE NATURAL RESOURCE 43 USA NOTICE OF APPEAL ISSUES OF JUSTIFICATION UNDER Art. XX (g)

44. GENERAL RULE OF TREATY INTERPRETATION: VIENNA CONVENTION ON THE LAW OF TREATIES Art 31: 1. A treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose 44 USA NOTICE OF APPEAL THE RELATIONSHIP BETWEEN THE BASELINE ESTABLISHMENT RULES AND THE NON- DEGRADATION REQUIREMENTS OF THE GASOLINE RULE IS NOT NEGATED BY THE INCONSISTENCIES FOUND BY THE PANEL WITH RESPECT TO Art. III:4

45. … if such measures are made effective in conjunction with restrictions on domestic production or consumption. ADDITIONAL REQUIREMENT OF Art. XX (g) (PREVIOUSLY IGNORED BY THE PANEL) THE BASELINE ESTABLISHMENT RULES AFFECTED BOTH DOMESTIC GASOLINE AND IMPORTED GASOLINE (i.e. individual baselines for domestic refiners and blenders) 45 USA NOTICE OF APPEAL THE BASELINE RULES FELL WITHIN THE TERMS OF Art. XX (g)

46. CHAPEAU REQUIREMENTS OF Art. XX (OPENING CLAUSE) PREVENTION OF «ABUSE OF THE EXCEPTIONS OF Art. XX» THE CHAPEAU PROHIBITS SUCH APPLICATION OF A MEASURE AT ISSUE (otherwise falling within the scope of Art. XX (g)) AS WOULD CONSTITUTE: -Arbitrary discrimination -Unjustifiable discrimination -Disguised restriction on international trade SUCH REQUIREMENTS IMPART MEANING TO ONE ANOTHER 46 USA NOTICE OF APPEAL

47. ALTERNATIVE COURSE OF ACTION AVAILABLE TO THE US: -IMPOSITION OF STATUTORY BASELINES WITHOUT DIFFERENTIATION -ACCEPTANCE OF INDIVIDUAL BASELINES TO FOREIGN REFINERS RECALL THAT THE PANEL VIEWED THE DIFFICULTIES IN VERIFICATION AND ENFORCEMENT CLAIMED BY THE US AS INSUFFICIENT TO JUSTIFY THE DENIAL OF INDIVIDUAL BASELINES TO FOREIGN REFINERS 47 USA NOTICE OF APPEAL

48. THE APPELLATE BODY AGREED WITH PANEL’S FINDING: «THERE ARE ESTABLISHED TECHNIQUES FOR CHECKING, VERIFICATION, ASSESSMENT AND ENFORCEMENT OF DATA RELATING TO IMPORTED GOODS…» THE US HAD NOT PURSUED THE POSSIBILITY OF ENTERING INTO COOPERATIVE ARRANGEMENTS WITH VENEZUELA AND BRAZIL THEY ALSO PREVENTED TO CONSIDER THE COSTS FOR FOREIGN REFINERS THAT WOULD RESULT FROM THE IMPOSITION OF STATUTORY BASELINES 48 USA NOTICE OF APPEAL

49. THEREFORE: 49 USA NOTICE OF APPEAL -UNJUSTIFIABLE DISCRIMINATION -DISGUISED RESTRICTION ON INTERNATIONAL TRADE

50. CONCLUSIONS: -THE PANEL ERRED IN SOME OF ITS CONCLUSIONS: THE BASELINE ESTABLISHMENT RULES FELL WITHIN THE TERMS OF ART XX (g). IT ALSO FAILED IN DECIDING WETHER IT FELL WITHIN THE AMBIT OF Art. XX CHAPEAU -SUCH RULES ARE NOT JUSTIFIED UNDER Art. XX OF THE GENERAL AGREEMENT (INTRODUCTORY REQUIREMENTS) THE APPELLATE BODY RECOMMENDED TO THE DISPUTE SETTLEMENT BODY TO REQUEST THE US TO BRING THE BASELINE ESTABLISHMENT METHODS INTO CONFORMITY WITH ITS OBBLIGATIONS UNDER THE GATT 50 USA NOTICE OF APPEAL